Primary Sources

Why you shouldn't trust your real-estate agent; the financial cost of expelling gays from the military; how to spot a crooked CEO

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THE NATION

Don't Ask, Don't Tell

It's debatable whether kicking homosexuals out of the military is good for unit cohesion and morale, as the policy's defenders claim—but there's no question that it's bad for the military budget, and probably for military readiness as well. According to a report from the GAO, the Department of Defense may have had to spend as much as $95 million to recruit and train replacements for the 9,488 service members discharged for coming out in various ways since "Don't Ask, Don't Tell" took effect, in 1994. In addition, 757 of those discharged were in "critical occupations"—many of them intelligence-related jobs such as "voice interceptor" and "interpreter/translator." (The report found that 322 of those discharged could claim knowledge of important foreign languages such as Arabic, Farsi, and Korean.) These costs may help explain why the military seems to have scaled back such discharges since the beginning of the war in Afghanistan. The Pentagon recently announced that only 653 gay service members were discharged in 2004, down from around 1,200 a year in 2000 and 2001.

Should you listen when a real-estate agent advises you to take that initial offer on the home you're trying to sell? Probably not. According to a study by two University of Chicago economists, agents systematically urge their clients to accept initial offers quickly, when they should probably be holding out for a higher price. Because their commission amounts to a relatively small proportion of any given sale, the study points out, real-estate agents have little incentive to wait for a marginally higher price—especially since that extra time could be used to sell other houses. Sellers, in contrast, want to get the best possible price, because they reap the greatest part of the profit. Tellingly, the researchers found that when agents sell their own houses, they leave them on the market about 9.5 days longer than similar houses they sell for clients, and get 3.7 percent more for them.

Corporate scandals often happen at the most successful firms—or at least at firms where the appearance of success breeds a megalomaniac CEO, reams of stock options, overoptimistic goals, and gaga recommendations from Wall Street equity analysts. This is the conclusion of a Boston Consulting Group study that analyzes the companies responsible for twenty-five of the largest corporate frauds since 1996. Compared with their clean competitors, "fraud firms" offered their CEOs eight times as much stock-based pay and set corporate performance targets 250 percent higher. Other factors associated with executive malfeasance were inflated stock prices and attention from the press (before their downfalls, fraud-firm CEOs were three times as likely to be quoted in the media as their competitors). Moreover, two interesting insights emerged. First, good corporate governance—of the sort mandated by post-bubble regulations—may have done little to prevent fraud. Enron's board, for instance, was rated among the nation's five best-governed in 2000. Second, while crooked execs may have fooled analysts, the media, and the public, the market sniffed them out. The median fraud firm lost 40 percent of its value in the year before its actions came to light. (One wonders who was selling …)

—"Corporate Governance Revisited: How Greed and Ego Can Destroy Companies and the Lessons to Be Learned," Kees Cools, Boston Consulting Group [This item is unavailable online.]

SOCIETY

Racial Profiling Writ Large

What makes for a "bad neighborhood"? In most people's minds it's broken windows, graffiti, abandoned cars, and other signs of decay—and, according to a new study, the mere presence of minorities. A team of researchers studying different neighborhoods of Chicago found that people were much more likely to deem a neighborhood disorderly if it was heavily black or Latino—regardless of objective signs of disorder such as broken windows. This bias was exhibited even by minorities: Latinos, for instance, were more likely than whites to associate disorder with the presence of black residents in a neighborhood, and black participants in the study were just as likely as whites to associate a higher percentage of black residents with a higher degree of decay. This suggests that not just overt racism but society-wide cultural stereotypes are at work.